Tax revenues reach new high as the tax mix shifts further towards labour and consumption taxes

30/11/2016 - Tax revenues collected in advanced economies have continued to increase from last year’s all-time high, with taxes on labour and consumption representing an increasing share of total tax revenues, according to new OECD research.

The 2016 edition of the OECD’s annual Revenue Statistics publication shows that the OECD average tax-to-GDP ratio rose slightly in 2015, to 34.3%, compared to 34.2% in 2014. This is the highest level since the Revenue Statistics series began in 1965. An increase in tax-to-GDP levels was seen in 25 of the 32 OECD countries that provided preliminary data in 2015, while tax-to-GDP levels fell in the remaining seven countries.

Consumption Tax Trends 2016 highlights that VAT revenues are the largest source of consumption tax revenues in the OECD, and have now reached an all-time high of 6.8% of GDP and 20.1% of total tax revenue on average in 2014. This is up from 6.6% of GDP and 19.8% of total tax revenue in 2012. Revenues from VAT rose as a percentage of GDP in 22 of the 34 OECD countries that operate a VAT and fell, only slightly, in 5 countries compared to 2012.

The new data shows that the structure of tax revenues continues shifting towards labour and consumption taxes. The combined share of personal income taxes, social security contributions and value-added taxes were higher in 2014 than at any point since 1965, at 24.3% of GDP on average in 2014.

The share of personal income taxes in total tax revenue continues to increase since the crisis, whereas the share of corporate tax revenues has not yet recovered to pre-crisis levels. Personal income taxes increased to 24% of total revenue in 2014, versus a pre-crisis level of 23.7% in 2007. The share of corporate taxes to total revenue in 2014 was 8.8%, relative to 11.2% in 2007. The share of social security contributions to total revenues also increased sharply after the crisis, from 24.7% of total tax revenues in 2007 to 26.8% in 2009. Since then they have decreased slowly as a percentage of total tax revenues to 26.2% in 2014.

In 2015, the largest increases in the overall tax-to-GDP ratio relative to 2014 were seen in Mexico and Turkey, and strong increases were also seen in Estonia, Greece, Hungary and the Slovak Republic. The largest falls in 2015 were seen in Ireland, Denmark, Iceland and Luxembourg. The fall in Ireland was due to exceptionally high GDP growth in 2015, mainly due to transfers of intangible assets into the Irish jurisdiction by a number of multinational enterprises. Excluding Ireland, the average OECD tax-to-GDP ratio in 2015 was 34.6%, an increase of 0.3 percentage points since 2014 for the remaining 34 countries.

Revenue Statistics also contains a special feature on “Current issues on reporting tax revenues”. This chapter discusses methodological issues in the classification of taxes used in Revenue Statistics, which is set out in the Interpretative Guide. A key issue discussed in the special feature is the treatment of non-wastable tax credits and the impact of different approaches to reporting these credits.

Detailed Country Notes provide further data on national tax to GDP ratios and the composition of the tax mix in OECD countries.

Key Findings:

Compared with 2014, the average tax burden in OECD countries increased by 0.1 percentage points to 34.3% in 2015. This followed a rise of 0.9 percentage points between 2009 and 2014, reversing the decline from 33.8% to 32.4% between 2007 and 2009.

The largest tax ratio increases between 2014 and 2015 were in Mexico (2.3 percentage points) and Turkey (1.3 percentage points). Other countries with substantial rises were Estonia, Greece, Hungary and the Slovak Republic (greater than one percentage point).

The largest falls between 2014 and 2015 were in Ireland (5.1 percentage points, due to exceptionally high GDP growth in 2015), Denmark (3 percentage points) and Iceland (1.8 percentage points). Luxembourg also showed a fall of more than one percentage point.

Underlying the OECD average, individual countries show widely differing trends. For example, Norway recorded a fall of 4.0 percentage points between 2007 and 2015, while Greece recorded an increase of 5.6 percentage points.

Historically, tax-to-GDP ratios increased through the 1990s, to a peak OECD average of 34.0% in 2000. They fell slightly between 2001 and 2004, but then rose again between 2005 and 2007 to an average of 33.8% before falling back sharply during the crisis.

Denmark has the highest tax-to-GDP ratio among OECD countries (46.6% in 2015), followed by France (45.5%) and Belgium (44.8%).

Mexico (17.4% in 2015) and Chile (20.7%) have the lowest tax-to-GDP ratios among OECD countries. They are followed by Ireland, which has the third lowest ratio among OECD countries at 23.6%, and Korea at 25.3%.

Data for 2014, the latest year for which a breakdown of revenues by category of tax is available for all OECD countries, show that revenues from personal and corporate income taxes are continuing to recover following the sharp falls of 2008 and 2009. However, the share of these taxes in total revenues remains at 33.7%, somewhat below their 36% share in 2007.

In 2014, an average of 24.3% of revenues is attributed to sub-central levels of government in Federal countries in the OECD - about two thirds of this is attributed to State and one third to local governments. The same applies to Spain, which is classified as a regional country in the publication. In the 25 unitary countries, 11.7% of revenues are attributed to local governments.

Consumption Tax Trends

Standard VAT rates in the OECD reached a record level of 19.2% on average in 2015 and have remained stable since. Ten OECD countries now have a standard VAT rate above 22%, against only four in 2008. The average standard rate of the 22 OECD countries that are members of the European Union (21.7%) is significantly above the OECD average.

Most OECD countries have implemented or announced measures to collect the VAT on the ever-rising volume of online sales by offshore sellers in line with the International VAT/GST Guidelines and the OECD/G20 BEPS Action 1 Report, Addressing the Tax Challenges of the Digital Economy.

Country Notes provide further data on national consumption tax trends and the effectiveness of VAT/GST collection in OECD countries.